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Chipotle (CMG -7%) is heading lower following its Q3 earnings results last night. The burrito restaurant chain reported modest EPS upside while revenue rose 13% yr/yr to $2.79 bln, which was generally in-line, maybe a bit light. The company also announced a $900 mln share buyback authorization, which is in addition to previously announced repurchase authorizations.

• This quarterly report was notable in that it was the first since Brian Niccol stepped down. He had been CEO since 2018 but he moved on to become CEO of Starbucks (SBUX). COO Scott Boatwright has been standing in as interim CEO, until a permanent CEO gets named. We surmised in our preview that CMG might name a new CEO along with Q3 earnings, but that was not the case. We suspect we will hear about a replacement soon.
• Comps came in at +6.0%, which were generally in-line with street estimates, maybe a bit light. That was down from +11.1% comps in Q2, however, CMG did reaffirm full year comps in the mid to high-single digits. Of note, comps accelerated throughout the quarter with transaction trends strongest in September as the impact from summer seasonality normalized. Also, CMG successfully launched Smoked Brisket, which is off to a "fantastic start."
• Brisket is performing really well, especially compared to carne asada. CMG says it's in that mid-teens area in terms of a percent of entrees. It's driving spend, it's driving additional transactions, comping really well over carne asada. In terms of repeat usage, it's driving new customers to the brand as well as getting people to increase their frequency.
• Looking ahead to Q4, CMG expects comps to modestly accelerate from Q3. Comps should benefit from strong transaction trends continuing thus far in October. However, CMG will be lapping a tougher comparison against carne asada in Q4 last year. CMG expects its transaction comps to modestly accelerate from Q3.
• CMG says its LTOs (limited time offers) continue to surpass expectations. Customers had been craving the return of Smoked Brisket for three years and it's off to a very strong start. CMG expects it will last through Q4. CMG has also been testing Chipotle Honey Chicken, which is adobo chicken seasoned with savory Mexican spices and finished with a touch of pure honey. Similar to Chicken al Pastor, it is simple to execute in its restaurants.
• When asked about the consumer, CMG said it's still seeing strength across all income cohorts even in this competitive environment as the company feels it provides extraordinary value for the consumer. For example, the chicken burrito on average is still under $10, which is still a 15-30% discount to peers. All income cohorts, even low income, are showing positive signs of strength.

There were some positives in Q3, most notably that brisket is performing very well and CMG is not seeing any softness from any income cohorts. However, sales and comps were still a bit on the lighter side. Also, some analysts were questioning the FY25 guidance for new openings at 315-345 as being a bit soft. That may be impacting the stock as well today. We also think investors may be disappointed a new CEO was not named along with earnings. CMG admitted on the call that Niccol's departure took them by surprise. Perhaps that is why naming a replacement is taking some time. Hopefully, we get a replacement named before heading into 2025.